Risk assessment

The “Revealing Benin” program is boosting growth

Growth in 2019 is set to continue on its favourable trajectory, supported in particular by the continued implementation of the “Revealing Benin” development plan, which foresees investments worth USD 15 billion over five years (2016-2021). Flagship projects, such as the new international airport of Glo-Djigbé or the extension of the port of Cotonou, will continue to drive public investment. Private sector participation in investment is also set to be enhanced via the adoption of a PPP law (2017) and reforms to improve the business environment, such as the restructuring of the Investment and Export Promotion Agency and a new Investment Code (2018). Cotton production, which accounted for more than 50% of export earnings in 2017, is expected to continue to increase in 2019, benefiting from reforms in the sector, efforts to improve yields, and favourable international prices. More generally, higher agricultural yields are expected to continue to boost export flows, which should also continue to benefit from the (modest) recovery of neighbouring Nigeria. In addition, the flow of expatriate workers from Nigeria, also expected to increase, will likely maintain the momentum of private consumption. Another contributing factor is low inflation: despite a likely increase in the price of imported products, forecasts indicate it will remain below the 3% threshold set by WAEMU.

Approaching compliance with the WAEMU convergence criteria

In light of the WAEMU deficit convergence criteria of 3% of GDP, the government is likely to continue its efforts to reduce the budget deficit in 2019. Fiscal consolidation efforts should be continued in line with the Benin authorities' commitments under the ECF programme provided by the IMF in April 2017. These efforts include the further rationalisation of current expenditure, to enable the government to continue to support economic growth through capital investment spending. However, these will be accompanied by a programme to improve the efficiency of public investment, which is expected to continue in 2019. The elimination of certain fiscal exemptions and the modernisation of the tax administration should improve revenue collection. Fiscal consolidation should also help to curb the rapid increase in public debt, particularly in the regional market, which has been used to finance public investment in recent years.

The current account deficit is expected to continue to decline in 2019, supported by a reduction in the large trade deficit. Exports are expected to continue to grow thanks to the rapid increase in cotton production and dynamic external demand, particularly from China. Nevertheless, the trade balance is expected to remain in deficit, burdened by a large import bill due to demand for capital goods. The transfer balance is also expected to contribute modestly to this reduction in the current account deficit: remittances from expatriate workers are expected to increase in line with the more favourable economic situation in Nigeria. Concessional borrowing will continue to finance the deficit, but FDI flows, through efforts to stimulate investment, and portfolio investment, buoyed by interest on Beninese debt, could also play a larger role in financing the external deficit.

Social and political tensions are increasing in the run-up to the parliamentary elections

In March 2016, businessman Patrice Talon won the presidential elections through distinguishing himself by his commitment to addressing issues of corruption and ineffective governance. Despite the implemented reforms, which aimed to improve the business environment, the popular discontent is rising, as evidenced by the numerous demonstrations and strikes by civil servants in 2018. Slow progress in the fight against poverty and unemployment, especially among young people, is also a recurrent grievance against Mr Talon and could lead to an erosion of support for the President in the March 2019 parliamentary elections. The controversy surrounding an electoral code that tightens the conditions for standing as a candidate in legislative and presidential elections is worsening a tenser political and social climate. The 2019 legislative elections could thus provide the first tangible indications of the popularity of the government's and the President's actions before the 2021 presidential elections.